Portfolio Inv estment Project – Instructions
The objectiv e of this project is for you to manage your own portfolio by inv esting $1 million
of your imaginary money in any stocks, options, or futuresthat are traded on the following exchanges: New York Stock Exchange, NASDAQ or
American Stock Exchange. You can maintain a portion of your money in risk-free money market fundsthat will earn 2% APR. You can also
execute short selling and trade on margin at an APR of 8%.
The investment project starts when you open an account in ‘Inv estopedia’ and
invest $1 000000 in a portfolio of securities on July 3oth. You are then expected to take buy, sell or hold decisionsthroughout each week
over an investment period of eight weeks. At the end of each week, you will be required to compute your portfolio’s holding period rate of
return, HPR, for the use in the performance evaluation part of the project. The formula for computing the weekly HPR is:
For example,the value of your portfolio at t= 0 7
(which is July 31st) will be US$1000000. Using Closing pricesfor Mondag, Au%ust7th, if the market v alue of your portfolio is
US$1 0200 0,then your HPR in week 1 will be [(US$1020000 /US$1 0 0,00 ) – 1] = 0.02 = 2%. PLEASE NOTE that it is absolutely vital for
you to compute your weekly HPR’s for each of the nine weeks of trading. In addition, you should also monitor the performance of various
stock marketsto develop a sense of what is happening and to serve as possible benchmarks when ev aluating your performance. I recommend that
éoui’computedweekly HPR’s for the MSCI World Index as well as some of the following: NIKKEI 225 Index; FTSE 100 Index; Australian All
r inanes n ex.
You are to perform the role of a portfolio manager whose performance will be judged againstthe MSCI World Index – which
meansthat you will be evaluated against a highly diversified equity portfolio. Your report should be written to your boss- as a report on 5
your performance over the eight weeks.
YOUR REPORT SHOULD CONTAIN THE FOLLOWING:
1. A printout of the nine-week trading summary
obtained from your ‘Inv estopedia’ trading
account, attached as an appendix. This should indicate that you hav e engaged in active trading
throughout the entire eight weeks period. If this is not attached, you will get zero marks.
2. Atable with the eight weekly returns which T
converted into monthly returns.
3. The arithmetic av erage and standard deviation of your monthly returns, together with the arithmetic
average and standard deviation of the monthly returns of the MSCI World
4. The geometric mean of the monthly returns of your
wrtfolio as well asfor the MSCI
5. Two approachesto evaluating your performance:
(i) Evaluate your performance
relative to the total risk of the portfolio. This would
be the case, if you were the only portfolio manager your
galuate your performance relative to either systematic risk or residual risk.
This would be the case, if you were one of many portfolio
managers your boss
It is imc ortant to evaluate thereturns of our . ortfolio under both these a . roaches. 7
6. For the approach
that assumesthat total risk is relevantto your client, you should:
(i) Show a graph of the CML and indicate where the portfolio is
(ii) Report the Sharpe ratio for your portfolio.
(iii) Report the Sharpe ratio for the MSCI World Index.
(iv) Indicate the M2
measure for your portfolio.
(v) Report the proportion of your portfolio’s risk that is systematic, which will
require that you compute
the R2 of the Characteristic Line estimate.
7. For the approach that assumes only systematic risk is relevant to your client,
(i) Show a graph of portfolio’s Characteristic Line.
(ii) Indicate the beta of your portfolio together with a reference to
(iii) Provide a graph of the Security Market Line and show where your portfolio lies.
siv) Provide the
reynor measure for your portfolio.
(v) Provide the Treynor measure for the MSCI World Index.
NOTE: In addition to the theories, concepts
and techniques that will be developed in this unit, you will need to employ some statistical procedures such as ordinary least squares
estimation using Excel, EViews or SPSS in order to complete this assignment.
Sourcesto get the data for indices:
Values of MSCI world
Index (ticker symbol ACWI- from mini-assignment 1) as well asfor all the other required indices can be found by in “Yahoo Finance” 2
website. You can get the necessary data for the index by typing the name of the index in the box called ‘Enter symbol- Look up’.
can also getthe values from Yahoo Finance by selecting Market Data > World lndices.
Important: My tradingreriod only have 5 weeks,l
open my account on 6 Aug but i hav e nottraded until 23rd Aug. That’s because I was watching the stock market and think it is not a good
time to invest. And i was late to open the account about 2 weeks. The trading history and portfolio data has been attached. This assignment
is a report and it is extremely important for me. Since i have lost some grade because of lost 2 weekstrading, Please help me to try you 5
bestto do well with it. I am not sure the pagesi placed whether enough for this assignment. If you have any problem with this assignment,
please be free to contact me as soon as possible.